The perfect storm hit housing, and why it may pass

Goldman Sachs’s Hui Shan has published a note arguing that a perfect storm hit housing in the first quarter — and that things will get better from here.

Part of that storm is, of course, literal — the unusually severe winter that dampened activity across the U.S. economy in January and into February. But that’s not all — she also points to the one percentage rise in mortgage rates from a year ago, fast-rising home prices, stubbornly tight mortgage lending standards, as well as the FHA single-family loan limit reduction and the expiration of the Mortgage Debt Relief Act of 2007.

But there’s good news to come. First, from the weather — there tends to be positive payback two months after the drag from bad weather on permits. So, she expects normalizing weather to boost permits issuance in April and housing starts in May.

On mortgage rates, the effect on housing typically fades after two to three quarters, and possibly four. But the effect of the May-to-August 2013 spike should soon be left behind, she says.

She does note the one area that will still weigh: tight lending standards, pointing to Monday’s release of the senior loan officer survey from the Federal Reserve. “We have not seen meaningful signs of easing in mortgage lending despite rising house prices and very low levels of mortgage defaults,” Shan writes.

That will result in “moderate” housing activity improvement. While it won’t provide the same boost to the U.S. economy as in 2013, she forecasts it will add 40 basis to real GDP growth this year.